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It gives me great pleasure to join you for the
Global Services Summit on Jobs, Growth and Development. Your gathering
could not have come at a more opportune moment.
We are just a year past the catastrophic
collapse of Lehman Brothers. Since then we have faced the deepest and
most global economic crisis since the 1930s. The effects have been
devastating and no economy has been spared. But thankfully, through the
concerted action of governments, the worst has been averted.
World economy on the path to recovery but
still fragile
But there is no room complacency. While fresh
buds of recovery are emerging, the situation is still fragile. World
economic growth has slowed abruptly in 2008 and the early part of this
year. The contraction in demand led to a slowdown in production, and in
international trade. World merchandise trade is projected to fall by a
full 10 per cent this year, its worst result since the end of the Second
World War. Foreign direct investment, which fell by 15 per cent in 2008,
is projected to drop further.
The WTO responded quickly to the financial
crisis by cautioning against isolationist policies. One of my first
initiatives, in the aftermath of the crisis, was to establish a
monitoring mechanism — a type of WTO “radar screen” to help Members
fight against protectionist pressures by ensuring transparency in the
measures taken in response to the crisis. So far, thanks in large
measure to WTO rules we have not seen a “tsunami” of protectionism.
But, all is not well with the global economy.
Our monitoring reports show that trade restrictive measures are
currently outpacing trade facilitating measures by a ratio of 2 to 1,
despite G-20 pledges to refrain from such actions.
Unemployment remains high and the
International Labour Organization tells us that it will continue to
rise. The worst of the crisis may be behind us but a sudden chill wind
of protectionism can still freeze the buds of recovery. This is why we
must remain vigilant to ensure an open international trading system. The
best way to achieve that objective is no secret: keep opening trade and
commit to the multilateral trading system.
A Tale of a Crisis and a Casualty
Many economic commentators have since
described and analyzed the factors involved in the financial crisis. And
if you would allow me, as a former banker, I would like to venture some
thoughts. On the crisis, I think the verdict is now clear. On the left
side of the balance sheet, there was nothing right, and on the right
side there was nothing left. Thankfully, that is not the case with
trading system.
More seriously, it does seem to me that rather
than any economic analyst, it was perhaps Charles Dickens who best
captured the prevailing situation. He once said, and I quote:
“It was the best of times, it was the worst of
times, it was the age of wisdom, it was the age of foolishness, it was
the epoch of belief, it was the epoch of incredulity”
While Dickens did not have the global economy
in mind, his words do seem to me to be particularly fitting. So, allow
me to take some liberties with Dickens and continue with, “A Tale of a
Crisis and a Casualty”. In this tale, the villains of the crisis are
“macroeconomic imbalances”, “lax supervision” and “regulatory failures”.
You all know the story well. What started as a financial crisis, fuelled
by insufficient regulation, turned swiftly into the worst economic
crisis in generations and the first truly global crisis in the history
of mankind.
Trade, or more specifically financial services
liberalization, was neither a villain nor a cause of this crisis but a
casualty. As you all know, in the world of the GATS, “liberalization” is
essentially about opening specified sectors to competition on a
non-discriminatory basis. It does not mean deregulation. It has long
been recognized that opening up certain services, such as financial and
telecom services, may require a regulatory framework in order to protect
consumer interests, and ensure competitive markets. It is no coincidence
that the GATS Annex on Financial Services preserves the right of Members
to take measures for prudential reasons even if they do not conform to
its obligations under the Agreement.
Indeed, the unsung hero in the economic
recession has been the service sector. While goods trade has plummeted,
services have been comparatively “crisis-resilient”.
Re-energizing the service sector will be key
to stimulating economic recovery. Services are after all vital for
leveraging production, distribution and consumption in the global
economy. During the crisis, the liquidity crunch badly affected the
availability of trade finance, the credit system that oils international
trade. Without the continual flow of this vital service, trade in goods
would have been hampered.
But the beneficial impact of services goes
much further than “trade finance”. Services underpin virtually every
economic activity needed in the design, production and distribution of
other goods and services. It is not surprising that since the 1980s,
world services trade has actually been growing more rapidly than world
production and merchandise trade. Today, more than half of annual world
foreign direct investment flows are accounted for by services.
Services trade as a stimulus for global
economic recovery
Services may no longer be the “new kid” on the
trade block, but it still has some way to go to reaching its full
potential. Services account for nearly two-thirds of global economic
activity but less than one-fifth of world trade. Even taking into
account that the real size of services trade may have been
underestimated, since international trade statistics simply do not cover
all trade in services as defined by the GATS, there is tremendous scope
for growth.
Recent research by the World Economic Group (Groupe
d'Economie Mondiale) at Sciences Po, Paris shows that, even if there are
no tariffs on services, the costs of trading services internationally
are at least twice as high as for goods. One may quibble over the
figures, as trade in services is subject to wide range of regulatory
measures that are not easily quantifiable. But even a rough estimate,
suggests that the removal of these costs will have a very significant
global impact. Indeed, the one consistent message from a broad range of
economic studies is that the gains from further opening of trade in
services far exceed those from opening trade in goods.
In the aftermath of the financial crisis, we
are experiencing a worrying erosion of global economic confidence. One
symptom of that erosion has been hesitation of governments in going
forward with multilateral trade commitments.
In the area of services alone, commitments
under the GATS, which were mainly taken some 15 years ago, no longer
reflect market realities in many cases. Markets and governments have
moved ahead unilaterally but most of these market openings are not bound
in the WTO. And some recent policy responses to the economic crisis have
shown the importance of WTO commitments to preventing back sliding.
To speed global economic recovery, we will
need to shore up peoples' faith in an open international trading system.
We will need to demonstrate that continued policy and regulatory reform
in favour of services trade will be vital to supporting economic
recovery. This may be clear to all of you attending this Summit, but you
are the “converted”. The challenge is to take this message beyond these
walls. Sectors such as transport, telecoms, finance and distribution are
after all the backbone of our international trading system. Other
sectors such as energy or environment hold a huge potential, in
particular in the fight against climate change.
The private sector has a key role to play. As
the engines of growth and jobs, your active support and engagement is
needed to restore global economic confidence. And one very obvious step
that can be taken in this direction is the timely conclusion of the Doha
Development Round. After all, you, as the private sector, will be the
main beneficiaries of a new global trade deal. The WTO needs you to get
involved in these negotiations, and to work even more closely with your
governments on the specifics, so as to drive the Round towards
completion.
Services negotiations in the home stretch
for the Doha Round in 2010
World leaders have set 2010 as the date fort
he conclusion of the Round. It is now the time to “walk the talk.”
The Hong Kong Ministerial Declaration contains
a roadmap for the completion of the services negotiations. It also
provides a clear set of objectives across all modes of supply.
If we look back at the July 2008 Ministerial
Meeting just over a year ago, many would view it as a high-water point
in the services negotiations. The Services Ministerial Signalling
Conference gave important indications of possible commitments that
surpassed most observers’ expectations.
These signals now need to be elaborated upon
and translated into concrete initiatives.
It remains true, however, that the failure to
achieve a final breakthrough on agriculture and manufactures has slowed
the pace of progress across the board. Not as many headlines may have
been devoted to services as compared to agriculture and goods, and some
commentators may have even gone as far as to argue that services were
being left behind. But make no mistake: services are a vital market
access pillar of this Round. There will be no Doha Round without a
substantial services package, even more so now that many emerging
economies are on the offensive on services.
Looking ahead — the next logical step in the
market access component of the services negotiations is the submission
of final offers and draft final schedules by those WTO members who
participate in the services negotiations. A decision on the timing for
submitting such offers would be extremely helpful in re-energizing the
negotiations. However, it is understood that such timing cannot be
determined in isolation from the rest of the items and in particular
agriculture and manufactures.
We will also need to progress on the
rule-making areas. Whether on domestic regulation or on GATS Rules,
including emergency safeguard measures, subsidies and government
procurement, we will soon need to look closely at what can practically
be achieved in this Round on these areas.
Another area of priority is the implementation
of modalities for the special treatment of the world’s poorest
countries. The progress achieved in this area now needs to be expedited
to establish a mechanism enabling Members to grant special priority to
services exports from these poorest countries.
My prognosis on the next steps, which applies
to services as well other areas of the Doha Round, has not changed. The
task which faces us all is a difficult but far from an impossible one.
I understand that many of you would be
frustrated by the low pace of the Doha Round and by the fact that the
fate of the services negotiations is linked to the other areas under
negotiation. But it would disingenuous to believe that services
liberalisation would be easier outside the Doha Round.
Any agreement on services outside the Doha
Round would in any event need to embrace the major service traders,
which today are many emerging economies, to be worthwhile. Would it be
easier to convince China or Brazil to further open its financial and
environment sectors outside the Doha Round? And on the other hand, would
it be easier to convince the EU and the US to further open its temporary
entry for professional service providers outside the Doha Round?
This is why I believe that it is worth
throwing your weight behind a Doha services deal, a big part of which is
already on the table. I understand your desire to see an ambitious
package emerge and I cannot but support that since this is what makes
eminent economic sense today. But if you share this objective, your
voice needs to be heard in the corridors of the WTO, in your Congresses
and in the discussions with your negotiators.
We have the tools and means to complete the
Round in 2010, what we need now is the leadership to do the deal. I
began with Dickens, let me finish with Moliere, “It is not only for what
we do that we are held responsible, but also for what we do not do”.
Thank you for your attention.
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